Home-purchase contract needs clear writing

May 5 2011 - 9:02am

When buying a home, mean what you say and say what you mean when filling out the contract.

That's the advice of lawyer Jeff Marks, a partner with Ryan and Marks Attorneys LLP in Jacksonville, Fla. A real estate dispute in the Sunshine State illustrates his point.

Christine and Nigel Gibney contracted to buy a house from Helen and Randy Pillifant for $620,000. The purchase contract provided that the sale was "contingent upon this property appraising for no less than $620,000," according to court documents.

Two appraisals were done. One arranged by the Gibneys (the buyers) came in at $560,000. The Pillifants secured an appraisal that valued their house at $635,000. The buyers refused to close and terminated the contract.

The sellers sued for breach of contract, arguing that any appraisal of $620,000 or more obligated the Gibneys to buy the house. The Gibneys argued that any appraisal for less than $620,000 allowed them to terminate the contract.

Who's right? Florida's Second District Court of Appeal favored the would-be buyers, ruling in April 2010: "In our view, 'appraising for no less than $620,000' means that no appraisal may be less than $620,000," the court ruled. "The appraisal contingency allowed the Gibneys to terminate the contract if any appraisal valued the property at less than $620,000."

Too often, homebuyers and sellers think a contract allows for one thing, when the language says something else.

"Contingencies should be written in full sentences," Marks says. "In this case, it should have read, 'This agreement is contingent, at buyers' option, on the property appraising for at least $620,000 as determined by the appraiser for the buyers' lender,"' he says. "There's no confusion in that language."

Here are four ways to avoid making common contract mistakes.

-- Give yourself time to get a loan. Many contracts are contingent upon the buyer getting financing by a certain date. In today's tough lending climate, buyers are wise to allow themselves plenty of time to get mortgage approval for a loan. If the date passes and no financing has been secured, the sellers may terminate the contract and keep the earnest money deposit.

"You should also be realistic about your closing date," says Patti Lawton, a broker with Welcome Home Realty in Brunswick, Maine. "Don't try to close too quickly. There are a lot of things that need to be done properly and you must give lenders, title companies and others time."

-- Be specific about which items stay with the house. You've heard the story of the buyer who walked into a new home only to discover that the refrigerator and chandeliers were missing. Check the contract. As a seller, be sure you specifically state on the contract what will stay with the home. As a buyer, pay attention. Don't assume that the Sub-Zero refrigerator is yours once you close.

-- Know the effective date. The contract doesn't always go into effect on the day you sign it. In every contract, certain things "must be done within X number of days from the effective date: inspections, loan applications and approval, title searches," Marks says. "If you don't know the date that the contract went into effect, you may not have a valid contract."

-- Get everyone to sign. "Sometimes the home is owned by both spouses, other owners or an entity such as corporation," Marks says. "Make sure all of the parties sign the contract. If a party to the transaction fails to sign, they're not bound to perform the contract."

You've heard it before: Buying a house is one of the biggest financial decisions you're going to make. Says Lawton: "Make sure everything that's important to you is in writing."

U.S. mortgage rates declined in the last week, according to Bankrate's latest national survey, while a major lawsuit by the federal government accusing giant Deutsche Bank of defrauding the Federal Housing Administration showed the mortgage crisis' legal dust is far from settled.

The Bankrate survey found the benchmark 30-year fixed-rate mortgage averaged 4.88 percent, off by 7 basis points from the previous week's 4.95 percent. A basis point is one-hundredth of 1 percentage point.

Meanwhile, the bellwether 15-year fixed-rate mortgage fell by 9 basis points, settling at 4.05 percent. With jumbo mortgages, or generally those for more than $417,000, 30-year fixed-rate mortgages averaged 5.36 percent, down 4 basis points.

Adjustable-rate mortgages took a sharper drop. The 5/1 ARM was 3.56 percent, a slump of 13 basis points. With a 5/1 ARM the rate is fixed for five years, then adjusted annually thereafter.

(Distributed by Scripps Howard News Service. Reach Tracey C. Velt at editors@bankrate.com.)


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